Ask Rajesh Samson, Partner-IRG (Infrastructure, Real Estate & Government), Ernst & Young, about ports, and he readily responds with three themes. “Enhance physical capacity, streamline private participation in ports, and address regulatory and clearance issues,” says Samson, during a brief year-end email interaction with Business Line.
Excerpts from the interview.
At the start of the century, or even mid-decade, what were the policy expectations to be fulfilled by the end of the first decade?
Late 1990s saw the first signs of the port sector gearing towards an all-round development. The award of the Nhava Sheva International Container Terminal (NSICT) to the P&O group (now owned by DP World), and the consequent improvement in handling efficiency of the terminal exhibited that world-class terminals could be created in India as well.
Further, the realisation that the growth of the economy was intricately related to smoother trade flows (which is largely through ports) enabled the Government to embark upon policy initiatives to enhance port performance.
By the early 2000s, the country realised that policy thrusts were required to three major aspects in the sector:
1) Enhance physical capacity.
2) Streamline private participation in ports.
3) Address regulatory and clearance issues.
To this effect, the Government announced ambitious policies and programmes such as the National Maritime Development Programme (NMDP), a Model Concession Agreement (MCA) for privatisation, and some changes in the regulatory structures in ports. It is worthwhile to assess where we are currently on these policies.
At the close of 2009, where are we?
Positive steps have been taken by the policymakers in terms of all the three thrust areas. However, it needs to be ascertained if these are in line with what was originally envisaged.
1) Enhancing physical infrastructure: The NMDP is one of the single-largest planned policy programmes in an infrastructure sector. However, the implementation of the same has been slow.
While capacity utilisation in year 2005 was 96 per cent, we are at the same level even now. In fact, had we experienced normal cargo growth this year, our capacity utilisation could well have been more than 100 per cent.
Of the Rs 500 billion port projects targeted to be completed till 2012, projects worth Rs 380 billion are still to be awarded. It is clear that the original deadline for completion of the programme would not be met.
2) Streamlining private participation: Though the Government unveiled its Model Bidding documents in the year 2000, the journey to finalise the MCA took almost eight years. Initial issues notwithstanding, the MCA is now being implemented (Paradip Iron ore terminal was the first project to be awarded based on the MCA).
In the minor port sector, however, State Governments have been successful in ensuring large private participation in a comparatively shorter time frame. As a result, the share of minor ports has increased from 8 per cent in the early 1990s to more than 25 per cent currently.
3) Addressing regulatory issues: Tariff fixation was one area which had required active Government policy intervention. On this front, the Government did intervene, with revisions in tariff guidelines, first in 2005 and then in 2008.
The Government also intends to enact a comprehensive regulatory act, which is currently under consultation phase. However, there is scope for improvement in the current tariff regulatory process.
In other regulatory areas, however, the policy thrust has not been as originally expected. Security clearances are still extremely time consuming; burden on environmental clearance is still with the investor.
Lastly, labour in major ports is still regulated by the Industrial Disputes Act, 1947, and therefore it is difficult to change labour practices
For 2010, what should be the agenda?
For 2010, the government should focus on the following aspects:
1) Ensuring that privatisation projects get awarded in time such that NMDP targets are met to the largest extent possible.
2) Developing regulations which ensure balanced returns to all stakeholders. This can be done through:
a) Making tariff setting powers to be more innovative and incentive-based.
b) Linking tariff to performance benchmarks.
c) Providing dispute resolution powers to the regulator.
3) Ensuring labour reforms in major ports.